Contributed nonfinancial assets or “in-kind donations,” are a critical part of the business model for many nonprofits. Whether it is donated office space, donations of food, or the pro-bono offering of professional services – all these forms of donations are key line items within the organization’s budget.
As important as in-kind donations are to the leadership of the organization, they are equally as important to the users of the financial statements. Because of this high level of importance to the users, including donors, board members, bankers, and others in leadership or influential roles within the nonprofit, the Financial Accounting Standards Board issued this standard update No. 2020-07—Not for Profit Entities (Topic 958): Presentation and Disclosures by Not-For-Profit Entities for Contributed Nonfinancial Assets. The objective of this update is provides transparency on the value of contributed nonfinancial assets to the users of financial statements.
The update is effective for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. Periods ending after June 30, 2022 will need to apply this standard.
Improvements included within ASU-2020-07
- Present contributed nonfinancial assets as a separate line item on the statement of activities and changes in net assets:
Prior to this update, an organization had the option to show revenue earned from in-kind donations from general contributions. The update now requires it be shown separately on a separate line item and applied retrospectively for comparative financial statements.
- Required disclosure of the uses of contributed nonfinancial assets, fair value of those assets and measurement techniques to determine that value. Below are the specific new disclosures that will be required:
- Prior to this update, nonprofit organizations had been internally documenting and valuing in-kind donations; now that process and inputs towards a valuation must be disclosed
- Disclose whether the contributed nonfinancial assets were used and if so, what programs or other purposes they were used for
- Disclose a policy, or create one, on how decisions are made to monetize the contributed nonfinancial asset or utilize it
- Descriptions for in-kind donations with donor restrictions will now be required to be disclosed
Ultimately, this update is an improvement and reduces questions from the user by providing transparency to the anyone reading the financial statements. For a long time questions been raised about what portion of total contributions were nonfinancial or how was the valuation for those services or good provided calculated. This update answers both of those questions and provides clarity moving forward for all.
I’m happy to discuss the different options for presentation, various disclosures or answering questions on fair value measurements. If you have any questions or are interested in learning more, please contact me.